This was the second talk I gave to a group of about 100 high school students in Houston a little while ago. I opened the event with, “The Social Function of Profits,” then Peter Klein followed with, “Big Business: Friend or Foe,” and I wrapped up with this one. Since I’m talking to high school students, it’s fairly peppy so you may prefer to listen to this, than do work on this Monday morning.

If the government bumps up the tax rate from 10% to 20%, then is the “drug portfolio” affected differently from a “single factory”? I think you’d be able to claim the failed tests as investment losses, so the portfolio looks like “one big investment” to me…

It was one of those moments when it dawned on me due to Mises when he described (I don’t know any more where, I guess it is in ‘Socialism’) why public companies mostly are quite unprofitable. He said there that the widely held believe that it is the missing profit motive that is present in a private owned company is wrong. After giving the managers of a publicly owned company proper profit motives it still wasn’t any better than without.

The reason is of course because there is no risk involved. Or better said there is risk, but it is not borne by the manager but always by the owner which is of course the taxpayer with a public company. So without having a stake in the company managers are just not able (even if they come out of successful private companies they owned themselves before) to lead the public company any iota better on average because the owner (the taxpayer) is for obvious reasons not able to perform a proper oversight, like it is done in private companies. And more important the taxpayer never runs out of money and never can be replaced by ‘another’ taxpayer.